Historical Background

A Filipinos traveling in Europe during the later part of the 19th century must have been impressed with the success of a new economic movement in effecting a gradual metamorphosis of the economic and social life of the people ion those countries. At the turn of the century, Filipinos, in increasing number, traveled and studied abroad and brought home with them new ideas. It was this group of Filipinos who were in close in contact with the new economic movement in Europe. Two names worthy of note were Dr. Jose P. Rizal and Teodoro Sandiko.

Rizal, after his side trip to Sandakan, Borneo in 1892, requested Governor Despudol that he and some relatives and friends be permitted to move to that place and found a colony under the cooperative plan of Robert Owen. Instead, he was arrested for treason and banished to Dapitan, Zamboanga del Norte. In Dapitan, Rizal had his ideas in cooperation partially fulfilled. He put up a school for the poor community on a purely cooperative basis. He also established a cooperative store with the help of his pupils. One noteworthy group organized by Rizal was the La Sociedad de los Abacaleros (Society of Abaca Producers). This functioned for only one year. Rizal returned the members share capital without any loss.

Teodoro Sandiko, in his travels in Europe, must have had a close contact with the cooperative movement in Germany where he came across with the Raiffeisen movement. He was very much impressed by this type of cooperative and he looked forward for an opportunity to have it introduced here in the Philippines. As destiny might have its choice, Sandiko had his chance when he was appointed one of the early governors when Civil Government, under the Americans, was established.

The Rural Credit Law. As soon as Civil Government was established, Filipino participation in government was encouraged. Teodoro Sandiko, then governor of Bulacan, prepared a bill patterned after the Raiffeisen type of credit union and had Rep. Albert Barreto of Zambales sponsor the bill in the lower House of Congress. The principal aim of this bill was to protect and develop the agricultural interest of the country. When the Barreto sponsored bill was presented it readily obtained unanimous approval on January 20, 1908. The Philippine Commission however, turned it down.

Undaunted by this defeat the sponsors of the bill again put it through in the Second Philippine Legislature. This time it was sponsored in the Lower House by Rep. Rafael Corpuz who succeeded Rep. Barreto from Zambales. The bill was ably presented in both Houses and it was finally passed into law on February 11, 1914 and became Act 2508. When this Act was finally made into law, Gov. Sandiko earned a title of Father of Cooperation in this country.

The administration of the Rural Credit Law was entrusted to the Bureau of Agriculture. The first rural credit association that was organized under this Law was the Agricultural Credit Cooperative Association of Cabanatuan, Nueva Ecija. It was formed on October 18.1916. With this initial organization farmers in the different provinces were organized. At the end of 1926 there were 544 rural credit cooperatives organized in the 42 provinces and by 1930 there were 571 associations formed all over the country. In 1935, however, about 90% of these cooperatives were inactive with no funds left in their treasury. The experiment on rural financing, through cooperatives was a failure.

Marketing Cooperatives. As soon as the organization of rural credit cooperatives was in full swing, The Cooperative Marketing Law (Act 2425) was enacted and approved on December 9, 1927. The rural credit associations were designed to help finance the productive efforts of the farmers. In order to provide incentives to the farmers to produce more an efficient machinery for the profitable marketing of their products should be provided. Wherever rural credit associations were organized cooperative marketing societies were also designed to be organized.The apparent weakness of the rural credit cooperatives, however, failed the enthusiasm of farmers to organize themselves into cooperative marketing associations. By 1939 only 164 societies were actually organized with a total membership of around 5,000 farmers. With this number only 35 reported their sale of products to the Bureau of Commerce. The number of associations reporting indicated that only 20% of the organized associations were active.

Causes of the failure of early cooperatives in the Philippines. Filipino economists and students of cooperatives in this country have often attributed the failure of cooperative societies in this country to the following causes:

  • Incompetent management
  • Lack of proper understanding of the principles, practices true aims, and purposes of cooperative associations.
  • Improper use of credits by the borrowers who, instead of using money borrowed for production, spent it for fiestas or luxuries.
  • Defective securities.
  • Political interference particularly in the collection of overdue accounts.
  • Lack of compensation of officers.
  • Inadequate character and moral responsibility in handling the other fellow’s money.
  • Lack of adequate safeguard against unscrupulous officers who took advantage of their position to grant loans to themselves and their compadres which later proved disastrous to the system.
  • The dominance of the individualistic attitude instead of the spirit of cooperation among the people.
  • Inability of cooperatives to secure adequate capital.
  • Their dependence on alien suppliers and distributors.
  • Ineffectiveness of the government and promotion of cooperative organizations.
  • Inadequate marketing facilities.

Considering the experiences of similar societies in other countries, however, the fundamental cause of failure in a cooperative enterprise is the lack of proper understanding of the principles and true aims of cooperative associations, and the non-adherence to them in actual operation of cooperative enterprises.

The ACCFA Financing Program. In recognition of the strategic position occupied by our farmers in the social structure and economic development of the country, the Congress of the Philippines in 1952 enacted Republic Act 821. This law established a system of liberal credit which is specially designed to meet the needs of the small farmer. It also created an administrative agency known as the Agricultural Credit and Cooperative Financing Administration (ACCFA). To implement the great task of rural financing, four general and interrelated objectives of the law are set forth as follows:

  • To assist small farmers in securing liberal credit.
  • To promote the effective groupings of farmers into cooperative associations.
  • To establish an orderly and systematic marketing machinery for, and controlled by, the small farmers.
  • To place agriculture on a basis of economic equality with other industries.